A few days ago AdvisorShares started the Mars Hill Global Relative Value ETF . The exchange traded fund employs an active long-short strategy with ETFs in pursuit of an absolute return.

It has been a while since there have been any absolute-return ETFs listed. The timing of this one, assuming it can deliver on its objective, could be quite good. The S&P 500 is up 60 per cent from its low in March 2009 and down only slightly from its recent peak. A common practice in the industry is to bring a specialized product at the height of demand. An absolute-return fund offers far more potential after a big move up in the market as opposed to after a big move down. The makeup of the fund as of July 15 was long 100 per cent and short 100 per cent.

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While it is difficult to know the exact strategies at work, there does appear to be several in place. The more long-short pairings the fund has, the less risk the fund takes on if it is wrong on one of its bets. For example, the fund has 70 per cent of its long exposure in various countries such as iShares MSCI Japan , Market Vectors Indonesia ETF and iShares MSCI Mexico and 50 per cent of its short exposure in countries at the heart of the European debt problems.

The fund manager's interest in being short a couple of the PIGS countries -- financially troubled Portugal, Ireland, Greece and Spain -- and perhaps a couple of related countries they feel could also be in trouble makes sense, but to the extent that this is a financial crisis and that financial companies would seem to be most at risk if this thesis plays out, it is interesting that they chose not to take a more precise short position in something like the iShares Europe Financial Sector Index Fund .

One reason not to use a fund such as the iShares Europe Financial Fund is that it only has $4-million in assets and only averages 26,000 shares traded per day, which speaks to one of the drawbacks of the Mars Hill Global Relative Value ETF -- potentially the lack of precise exposures.

Again, if the short exposure to certain parts of Europe is about the financial crisis, the largest short position is in France, but only 17 per cent of the France ETF is in financial stocks, which arguably makes the France ETF an ineffective way to short the financial crisis. The France ETF only has one financial stock in its top eight holdings. If EUFN in not suitable for lack of volume, EWQ might be less than ideal due to being too diverse, which means the best choice could be shorting individual stocks -- which, of course, the Mars Hill fund cannot do.

In addition to the long and short positions, the fund managers can use futures positions to capture moves up or down in the market; this strategy is referred to as a directional overlay. Mentioned above is that the fund will be actively managed and the directional overlay will be an active decision that can either go in the fund's favor or be a drag, i.e., a risk factor to owning the fund.

The AdvisorShares website has a document that describes Mars Hill's process for managing this fund, but there can be no back test for an actively managed fund. Buying the Mars Hill Global Relative Value ETF ultimately boils down a belief that Mars Hill can deliver on its objective, and the best way to feel confident about that might be to give the fund time to prove itself.

At the time of publication, Roger Nusbaum had no positions in the securites mentioned. Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog.

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